Thread by @warikoo

Mistakes I made with my money.

A thread...

We grew up without any money.
Perpetually in debt. Hand to mouth existence.

Which is why I grew up hating money.
I thought it was the cause of all our problems.

And I never wanted money to rule over me.

What I didn't realize though that this desire to dismiss money, led me to disrespect it.

Because I had a knack of making money, I never really spent any effort in understanding how to maintain and grow it.

In the process making a lot of mistakes.

I took loans to buy real estate.
Assuming the price appreciation will take care of the interest rate I pay.

I didn't take into account taxes
I didn't take into account inflation

I didn't do the math that to get a respectable return, the price will have to grow ~20% yoy

Whenever I made any extra cash, instead of paying off the loan, I invested it in startups.
Convinced that the startup will multiply my money several times over.

I basically went to a casino convinced I would make money enough to pay my loans.
That's what I did!

I invested in illiquid assets - startups, real estate.
And rarely in liquid assets - stocks, gold.

So when tough times happened, I had a lot of "paper wealth" but no cash.
Which meant taking even more debt.

Never trying to paying it back.
Because hey, the previous tweet!

For an entire decade I took lower than market salary, over indexing on equity.
I believed the equity will make me much much more than the salary ever would.

So when things didn't end up the way it was expected, I was left with no wealth.

I over indexed on the future.
Continued to maintain my lifestyle when I should have lowered it.
Maxed my credit cards.
Took on more debt.

All in the hope that one mega event in the future will solve all of it.

I invested in stocks when the markets when high, in the hope of making fast money.
I sold in panic when market tanked, so that I didn't lose money.

It should have been the exact opposite.

Whenever in need of money, I broke my MF and FD to generate cash.
I basically broke compounding.

I persisted with it during the painful slow growth period.
And just when it was about to take off, I clipped its wings.

I discouraged my wife from investing in MFs and FDs and buying gold.
She still did.

I mocked her, laughed at her.
Challenged her to a return comparison at the end of the decade.

It was her investment that saved us.
Not once, thrice.

Because I hated money, I never respected it.
And I realized that money didn't respect me either.

While I knew how to make it, I never understood how to preserve it.
How to grow it.

Today I think I know.

1. Taxes are a thing. A real thing.
Always look at your tax-adjusted returns when comparing.

2. Inflation is a thing. A real thing.
Money loses value over time. Always include that in your return calculation.

3. Compounding rests on a very important element - time. You need time to witness compounding in action. Give it time. A lot of time.

4. Liquidity is critical. Invest in away that you can withdraw cash whenever you need. Else what's the point?

5. If you have excess cash, wait.
Wait for the right opportunity.
Wait patiently.
Wait for markets to drop.
Wait.
The price you buy at, determines your return.

"No one wants to get rich slowly"
- Warren Buffet

6. When in your 20s, live like a pauper.
Live within your means.
Pay your bills, and then pay yourself by investing.
Pay for your desires the last.
Do not take loans for your desires.

7. Take loans only for things that appreciate in value. Education. Maybe a house. Only one!

8. Do not invest according to your echo chamber.
Angel invest b/c you are a founder.
Stocks b/c you are in finance.
Gold b/c you are a trader.

Get to learn and respect all asset classes.

9. Double down on what is working rather than diversify. Diversification will not yield super-normal returns.
Owning more of what is working, will.

10. Allow compounding to happen.
It takes time. Decades.
For the longest time it will seem nothing is happening.
Its happening!

The biggest lesson that I have learnt about money is that money buys you freedom.
And freedom is a privilege.

For the longest time I denied myself this freedom.
And today when I have it, I realized all the mistakes I made that prevented me to get this freedom.

These mistakes make me wise today, at 40.
I hope they make you wise today, much earlier for you!

Fin.